What does the end of Libor mean for your mortgage?

Peter D. Antonoplos

Washington D.C., April 29, 2019 – The London Interbank Offered Rate (LIBOR), is a financial instrument used to determine interest rates for loans and is being phased out as the main index for this purpose by lenders as soon as 2021.  The transition from LIBOR to another interest rate benchmark will mean that the most interest rates paid by existing home mortgage borrowers in the U.S. will fluctuate—many of them becoming more expensive.

LIBOR has been at risk of failure for many years because of its thin and unreliable representation of national economies.  This issue has occurred as the major banks who respond to LIBOR with their interest rate submissions have faltered or completely ceased responding to the necessary surveys that keep this index functioning.

The first issues that LIBOR experienced came in 2012 when multiple investigations revealed that the major banks who dictate the LIBOR index were manipulating rates to sell more mortgages and thus, make a greater profit.  Once these claims were confirmed, the benchmark became a focus for U.K. regulatory oversight.

In order to make a profit on their loans, large and small banks give adjustable-rate mortgages based on the LIBOR index and then add a set number of percentage points.

With major concern across financial institutions, LIBOR will need to be replaced quickly by a new default rate benchmark that can determine where  current and future adjustable-rate mortgages rates trend.

Mike Fratantoni, chief economist at the Mortgage Bankers Association in D.C., spoke with WTOP about the LIBOR crisis and what the United States government plans to do moving forward with interest rates, “The Federal Reserve System has led a conversation in the U.S. with financial market participants.”

“They are recommending something called SOFR, the Secured Overnight Financing Rate, which is monitoring the market for overnight lending of U.S. Treasury Securities,” he said.

As SOFR is generally appraised at a lower rate than LIBOR, adjustable rates could either go down or be suppressed from increasing. However, as both borrowers and investors will look to protect those loans, it is more likely that SOFR will be used at an inflated rate for existing loans.

Fratantoni acknowledged this the potential issues with stepping away from LIBOR saying, “Trying to balance, not to disrupt the consumer and give them a rate or a payment that would (be) different than they would expect under a LIBOR benchmark, but also not to disrupt investors who, when they’re receiving these payments, going in thought it was going to be based on LIBOR as well.”

With LIBOR leaving the financial marketplace by 2021, adjustable-rate mortgages that are currently being underwritten will now include language that effectively states the lenders ability to change the benchmark used to determine rates.

“It is incredibly important that consumers be aware that this change is coming just a few years down the road, that they are going to be getting a notice or disclosure from their lender that their benchmark is changing,” Fratantoni said.

Finally, Fratantoni emphasized the importance of consumers understanding why it is necessary to transition away from LIBOR, “It is good for them to understand the reasons behind this, but for also for them to understand that the goal is to move to a more stable and reliable benchmark over time.”

The Antonoplos & Associates financial services branch provides our diverse base of banking clients with a comprehensive range of solutions for LIBOR loan related legal issues. Our LIBOR practice provides the banking industry with over twenty years of client focused practice in title litigation, loan modification, title curation and equitable subrogation resolutions in connection with loan portfolios.  By striving to holistically understand the issues that our clients face, our financial services attorneys’ are able to provide forward thinking loan documentation and amendments through title curative actions including the correction of legal description errors, resolution by judicial action, equitable subrogation, and securing releases of prior liens, mortgages, and deeds of trust while also prescribing remedies for corrections to promissory notes and deeds of trust. 

Antonoplos & Associates financial services lawyers routinely litigate equitable subrogation matters on behalf of nationally and locally chartered banks. Our clients include mortgage lenders, mortgage servicers, banks, banking associations, and other financial institutions including the title insurance industry. Overall, our LIBOR attorneys’ have extensive experience representing loan portfolios and managing mutli-jurisdiction loan modifications and litigation for clients located within the financial services industry.
Peter D. Antonoplos, Esq.Partner
Antonoplos & Associates, Attorneys At Law
1725 Desales Street, N.W.Suite 600,
Washington, D.C. 20036
Fax:    (202)-803-5677
Email: Peter@